Detroit faces up to its past

Sunday

Jul 28, 2013 at 6:00 AM

Detroit's bankruptcy filing, the largest to date of any American municipality, is a sad but necessary step for a city that was once among the most powerful engines of the American economy. With debts of some $18 billion, a history of corrupt management, a steeply falling population — one-quarter of the city's residents have moved out in the last decade — and neighborhoods plagued by dilapidated buildings and high crime rates, Detroit is indeed in rough shape.

Detroit's road ahead is not hopeless, but it will be difficult, and the rest of the nation, from Washington, D.C. to state capitals and city and town halls, should pay close attention to its lessons.

First lesson: Putting off the day of financial reckoning for future obligations — primarily retirees' health care and pensions — simply advances a community along the road to fiscal ruin.

Second lesson: Piling up too much public debt, whatever the purpose, runs grave risks. Cycles of taxation, spending, and issuance of bonds are fine so long as those issuing the debt can reasonably anticipate having the economic clout to service it.

But when, as in Detroit's case, economic strength is in decline, and particularly when that decline takes place against a backdrop of corruption and mismanagement, the risks for investors become unacceptable, and the prospects for meeting debt obligations become overwhelming.

Unfortunately, Detroit for far too long ignored those warnings. One-party political control ensured that unions received most everything they asked for, even as demographics changed and the realities of a globalized economy were counseling restraint.

The resultant bankruptcy is not the first of an American municipality, nor will it be the last, but it is the largest to date, and its lessons are likely to be indelibly etched into the minds of local, county and state officials across the nation.

After much legal wrangling, the results are likely to be reduced pensions and benefits for Detroit's many municipal retirees, and heavy losses for investors who bought the city's various bonds.

While no one is pleased by such prospects, they are far preferable to a state or federal bailout, neither of which seems likely, and either of which would send the wrong message. The fact is that no investment is guaranteed, and bailouts merely transfer the risk from those who should assume it to those who should not, spreading economic harm and eroding economic principles and responsibility.

We in Massachusetts are in much better shape than Detroit, and officials in cities such as Worcester are doing what they can to address long-term obligations. They must not waver from that mission. We only wish that the Legislature in Boston showed as much concern as local officials, to say nothing of Congress, whose idea of saving money usually translates to a very slight slowing of the rate of growth in one budget or another.

We hope neither our state, nor any political subdivision of it, has to endure what is in store for Detroit. But the Motor City will not simply disappear in years to come. It remains the largest city in Michigan, and for all its problems has begun to take some innovative steps forward, such as by clearing vacant swathes of the city, or turning them over to groups for urban farming.

Detroit's Latin motto — "Speramus Meliora; Resurge Cineribus" — means "We hope for better things; It shall rise from the ashes," and was adopted following an 1805 fire that destroyed most of the city.

We now know that, in 1805, Detroit's best days lay far in the future. The city's recent history offers no model for imitation, but its bankruptcy filing and the inevitable discipline that will bring, bear watching by an entire nation.